U.K. House Prices Increase the Most in More Than 2 1/2 Years

The average cost of a home rose 1.3 percent from July, the biggest monthly increase since January 2010, Nationwide Building Society said in a report today. Photographer: Chris Ratcliffe/Bloomberg

Aug. 31 (Bloomberg) -- U.K. house prices rose the most in
more than 2 1/2 years in August as a resilient employment market
helped overcome the impact of a shrinking economy, Nationwide
Building Society said.

The average cost of a home rose 1.3 percent from July, the
biggest monthly increase since January 2010, the Swindon,
England-based customer-owned lender said in an e-mailed report
today. The average price in August was 164,729 pounds
($260,400), down 0.7 percent from a year earlier.

“Given the difficult economic backdrop, the extent of the
rebound in August is a little surprising,” Nationwide Chief
Economist Robert Gardner said. Still, “conditions remain fairly
stable. This may be explained by the surprising resilience
evident in the U.K. labor market, with further increases in
employment in recent months.”

The Bank of England and the government are trying to
stimulate the economy by boosting credit through their Funding
for Lending Scheme. While the recession deepened in the second
quarter, data this month showed jobless claims unexpectedly fell
in July and a wider measure of unemployment dropped to its
lowest in a year.

The pound was little changed against the dollar and was
trading at $1.5787 as of 8:10 a.m. in London. U.K. government
bonds were also little changed, leaving the yield on the 10-year
gilt at 1.45 percent.

Stable Outlook

Policies to support the availability of credit and lower
the cost of borrowing “should help to provide support” to the
property market, Gardner said. “House prices are expected to
remain fairly stable over the next two years.”

In the three months through August, house prices fell 0.5
percent compared with the previous three months, according to
the Nationwide report.

A report by Hometrack Ltd. this week showed house prices
fell 0.1 percent in August, declining for a second month. The
Bank of England said yesterday that lenders granted 47,312 loans
to buy homes, compared with 44,124 in June. The total remains
below the average for the previous six months of 50,729.

The Bank of England cut its growth forecasts earlier this
month and said the outlook is “unusually uncertain.” Recent
indicators suggest the economy is still struggling to recover
amid the euro-area turmoil and weak domestic confidence, with
gauges of both manufacturing and services falling in July.

Forecasts Cut

Separately, the British Chambers of Commerce cut its U.K.
economic forecasts and now predicts the economy will contract
this year for the first time since 2009. Gross domestic product
will fall 0.4 percent in 2012 and expand 1.2 percent in 2013,
the BCC said. It previously estimated growth of 0.1 percent and
1.9 percent respectively.

An index of British consumer sentiment compiled by GfK NOP
Ltd. stayed at minus 29 in August, data today shows. The gauge
has been in a range of minus 29 to minus 31 for the past eight
months. A measure of Britons’ economic outlook for the next year
rose 3 points to minus 27 and a measure of the climate for
making major purchases dropped 5 points to minus 31.

Yesterday, the Confederation of British Industry slashed
its forecasts and said “downside risks” remain.